Economic value added

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Please clarify what is the right approach for EVA

Is it EBIT(1-tax) or EBIT(1-tax)+ Interes(net of tax)

Replies (3)

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".)

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

Rightly said by Mr. Amit Kanuga,

 EVA = NOPAT - Cost of Capital.

 But it seems your query was regading the formula of NOPAT,

The Correct Formula for NOPAT is either of the following

  • EBIT(1-T)
  • PAT + Interest (1-T)

And  for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.

Originally posted by : Saliq Ansari
Rightly said by Mr. Amit Kanuga,

 EVA = NOPAT - Cost of Capital.

 But it seems your query was regading the formula of NOPAT,

The Correct Formula for NOPAT is either of the following


EBIT(1-T)
PAT + Interest (1-T)


And  for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.

Thanks for ur support for my answer

 

yes ur approach for the same is good one.

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